News Post

Global LNG leaders see US transitioning to spot market as new plants arrive

By ANNA SHIRYAEVSKAYA and ISIS ALMEIDA
Bloomberg

The US is about to change the global LNG market forever.

When the first tanker carrying liquefied natural gas (LNG) from shale fields leaves the Sabine Pass terminal in Louisiana in December, it will turn consumers into traders with more bargaining power. That will transform a market dominated by long-term contracts into one where spot trading gains prominence, similar to crude oil.

Since the first LNG cargo went to the UK from Algeria under a long-term contract in 1964, buyers opted for guaranteed supply because the fuel was scarce. That’s changing because gas from the Eagle Ford and other fields will transform the US into the third-biggest exporter by 2020. Spot trading will probably account for almost half of transactions by then, from 29% last year, and LNG is poised to overtake iron ore as the most valuable commodity after oil.

“We see the US as a major contributor to the development of the LNG spot market as the volumes start to ramp up,” said Jamie Buckland, head of investor relations at GasLog in London, which owns 22 LNG tankers. “There should be a lot more flexibility and you could see some buyers of US volumes selling product on to others.”

Last week, the Energy Department gave Cheniere Energy final approval for the nation’s fifth major export terminal at Corpus Christi in Texas, which will ship the fuel from 2018.

Valuable Commodity

Companies including Tokyo Gas Co. have said they will seek to profit from buying and selling US cargoes that, unlike those on most current contracts, aren’t tied to a destination. Cheniere, the operator of Sabine Pass, expects the US to produce 74 million metric tons of LNG by 2020. That’s about 22% of expected global output by 2019. Only Qatar and Australia will produce more.

Significant US exports will likely boost prices, currently at about $3/MMBtu, Energy Aspects said in a report for UniCredit SpA on Tuesday. US gas may converge toward European levels, now at about $7/MMBtu, the analysts said.

US natural gas will play an important role in connecting Pacific and Atlantic markets, Shigeru Muraki, an adviser at Tokyo Gas, said at a conference in Kuala Lumpur on Tuesday. The company is expanding its investment in shale gas production in the US as a natural hedge for LNG, he said.

Suppliers are now signing deals going as short as two or three years rather than 20 years, according to Charif Souki, Cheniere’s CEO.

$120 Billion

Long-term contracts will be eroded amid new supply coming from Australia and the US, Dubai Mercantile Exchange’s CEO Christopher Fix said at the conference in Kuala Lumpur.

LNG trade will exceed $120 billion this year, overtaking iron ore as the second most valuable commodity after oil, Goldman Sachs Group said in a March report. LNG is gas cooled to minus 160 degrees Celsius (minus 256 degrees Fahrenheit) so it occupies 600 times less space.

Spot and short-term LNG trades are defined by the International Group of LNG Importers in Paris as deals lasting four years or less. They accounted for 16% of all transactions in 2006 and that share may expand to 45% by 2020, according to Alan Whitefield, a senior associate at Sund Energy, a consultant to the industry.

The total LNG market will expand 40% by 2019, from 2013 levels, according to the International Energy Agency in Paris.

Commodity Market

“What will make it a more interesting market is when gas starts being exported from the US, because then it becomes really like a commodity market,” Marco Dunand, the CEO of Mercuria Energy Group, said in an interview last month in Lausanne, Switzerland. “If you have constant supply coming from a terminal, then it becomes a liquid commodity.”

The new US supply will also help link regional markets, said Ann-Elisabeth Serck-Hanssen, acting senior vice president of marketing and trading at Statoil in Stavanger, Norway.

“We as a trading organization make our living from margins, so it both opens up opportunities and ties the different producing regions closer together,” she said. “If you believe a good market is a liquid market, this is positive.”

Current Boxscore Clients

News Post

Global LNG leaders see US transitioning to spot market as new plants arrive

Project News